Could be a myriad of ways to read that I suppose. But a deflationary reading is the most obvious. Combine that observation with my view that a deflationary environment will hit equities and gold simultaneously - should give you enough to explain my comment above. Of course, these are all points that can be disagreed with.
It's quite interesting though how the zeitgeist has shifted from deflationary expectations to inflationary - and yet the bond market still isn't coming to the party. Fund managers that haven't bought the inflation story is my guess. But who knows... they could be stubborn. It might be that they missed out on the rally and their investors are starting to ask why, with redemptions hitting them hard. In such an environment they would probably have to stick to their guns and assert the deflation story - if they told their clients to stay out of equities, missed the rally, and then told them they were wrong, how much confidence would that instill? Many, i bet, are going to claw tooth and nail to keep total credibility - and that can only happen with another deflationary leg down.
TO continue to rant for a moment.. My call last year was that it would take 6-18 months for the inflation narrative to come to the fore. I was right. But I tend to now supplement a general inflationary outlook with caution to the effect that there may continue to be intermittent deflationary periods in the run up to the big inflation coming down the road. How long - no idea. Faber might be right by saying that it will take another few years.
The long term deflationistas I think have a hole in their theory concerning the supposed unwillingness of the american consumer to spend - particularly the baby boomers. The thesis is that their personal wealth has been wiped out and no longer can look forward to their jet setting retirement. They point to a generational change of attitudes similar to what took place after the second world war - and that the financial crisis is the catalyzing event that caused this shift.
But it's hardly a comparison. I don't think seeing a paper loss from a dysfunctional market compares at all to seeing your house bombed and yr neighbours dismembered by shrapnel... ahem...
What's more - people are relatively stupid and have short attention spans. If Bernanke can keep equities high enough for long enough - retirement won't look as scary as it did for a moment. And then people will spend again.
It's a question of whether the fed can hoodwink perception for long enough... If so inflation will come sooner rather than later.
If not then we'll have to suffer a few more deflationary downturns. The reason is that there is still too much production capacity which has not been removed from the system. It will take a deflationary environment - but with all the continued stimulus it will only ever be a slow burn downward - Japan style - and take quite some time before the reduced production can cause the scarcity required to really drive prices.
